Massachusetts Legislators All Ears for Millionaires’ Tax

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Supporters of a 4 percent state surtax on million-dollar-plus incomes can expect a largely receptive audience when they appear before a legislative committee Thursday to stump for an amendment to the Massachusetts Constitution to establish it. 

Beacon Hill leaders had their eyes on the extra revenue before the Massachusetts Supreme Judicial Court last July invalidated a ballot question slated for the November 2018 general election because it tied the tax to specific types of appropriations (education and transportation), in violation of the state constitution’s standards for a citizens’ petition statewide referendum.

Instead, supporters are back with a new version of the so-called Fair Share Amendment, this time proposing that state legislators put the measure on the ballot directly, which would avoid the restrictions on what kinds of constitutional amendments can go to the voters via citizens’ petition. If at least half of state legislators (acting as a constitutional convention) vote for the measure this current 2019-2020 legislative session and during the 2021-2022 legislative session, the measure will go to the state general election ballot in November 2022 for voters to decide.

Supporters of the so-called Millionaires’ Tax say it’s fairer for rich people to pay extra on top of the current 5.05 percent flat income tax, and they project that the surtax would raise an extra $2 billion they say is sorely needed for roads and bridges and public transportation and public schools.

Opponents don’t see what’s unfair about a flat tax rate, where those with higher incomes pay more in actual dollars than those with lower incomes. They also predict the surtax would hurt the Massachusetts economy by encouraging Massachusetts residents with high incomes to leave and stop paying income taxes in the state altogether.

These warring versions of fairness and economic effects drive the debate, but many state legislators are mostly interested in tax dollars and what projects they can steer them toward.

The Massachusetts Budget and Policy Center, which supports the Millionaires’ Tax, says that when you combine state income taxes, state sales tax, and local property taxes, households with the lowest incomes tend to pay a larger percentage of their incomes in taxes than households with higher incomes. People making less than $22,500 a year, for instance, pay about 10 percent of their incomes in those taxes, while people in the top 1 percent making $690,400 or more a year pay about 6.8 percent of their incomes in those taxes, according to a study by the Institute for Taxation and Economic Policy cited by the Massachusetts Budget and Policy Center.

The disparities lessen when considering other brackets – people making $22,500 to $41,400 pay about 8.5 percent of their incomes in those state and local taxes, compared to 8.0 percent for those making $269,800 to $680,400. Closer to the middle, the spread is also about one-half of one percentage point:  The middle 20 percent, making $41,400 to $71,000, pay about 9.3 percent of their incomes to those state and local taxes; the next highest 20 percent bracket, making $71,000 to $122,600, pay about 9.4 percent, or almost the same as the bracket below it; the next highest 15 percent bracket, making $122,600 to $269,800, pay about 8.8 percent of their incomes, according to the study.

The Raise Up Massachusetts coalition sees the numbers as crying out for a tax-the-richest scheme.

“In fact, those with the highest incomes contribute the lowest percentage of their incomes, with the highest-income 1 percent of taxpayers paying the smallest share of any group. And as a result of years of systemic barriers to opportunity, Black and Latinx workers are over-represented among low-income taxpayers and underrepresented among higher-income taxpayers, meaning that our current tax system makes it relatively harder for people of color to get ahead,” said Raise Up Massachusetts in a written statement.

But Citizens for Limited Taxation doesn’t buy the fairness argument.

“We can’t conceive of how anything can possibly be more fair than every taxpayer paying an equal tax rate on whatever their income. The higher one’s income the more in taxes one pays. How can imposing a different tax rate on some and not on others by any stretch be termed ‘fair’? It is the antithesis of fair,” Citizens for Limited Taxation said in a written statement.

As for the effect, Citizens for Limited Taxation warns Massachusetts lawmakers about sticking it to rich residents, noting that New York Governor Andrew Cuomo, a liberal Democrat, in February came out against raising additional taxes on rich people in his state.

“Please recognize that assaulting “the wealthy” — the most mobile population — will only serve to motivate many of the commonwealth’s higher earners and businesses to relocate to more tax-friendly, greener pastures,” Citizens for Limited Taxation said. “…It is something you should consider carefully before rubber-stamping this proposal with your vote. When wealthier Bay State taxpayers flee, who will pick up and pay their ‘fair share’ burden, their taxes which now already provide a disproportionate amount of state revenue, and state spending?”

Raise Up Massachusetts, which supports the Millionaires’ Tax, notes that other states have graduated income tax rates that hit the highest earners at rates around the 9.05 percent proposed for Massachusetts – including New York, New Jersey, Vermont, Minnesota, Oregon, Hawaii, and California.

“There have been numerous economic studies of the effects in those other states and they have not found the negative consequences that opponents predict. On the contrary, these investments help create better economic opportunities for our residents and a transportation infrastructure that works, all of which will help attract and grow businesses in the state,” Raise Up Massachusetts said, without citing specific studies.

The group’s list doesn’t include Connecticut, which taxes lowest earners 3 percent and $1 million-plus earners 6.99 percent. Connecticut has had well-documented fiscal problems during recent years, though Republicans and Democrats argue over whether high taxes are to blame.

Skeptics about the Millionaires’ Tax, including the Massachusetts Taxpayers Foundation, note that if a significant portion of high earners in Massachusetts moved to nearby New Hampshire, which has no state income tax, tax revenues would fall dramatically in Massachusetts. But supporters say higher tax rates on millionaires in other states have brought in more money to the state than the taxes the state lost from those who left.

Paul Craney, spokesman for the Massachusetts Fiscal Alliance, which opposes the Millionaires’ Tax, noted that voters in Massachusetts have previously rejected graduated income tax schemes several times. In 1994, for instance, a proposed constitutional amendment allowing higher income tax rates on higher earners lost 65 to 28 percent.

“Historically speaking, there isn’t a ballot question less popular than the graduated income tax. Lately, it’s been marketed by proponents as a ‘surtax on high earners,’ and that has created some buzz by big government politicians. But when people discover what it really does — removing our constitutional guaranteed rights to an equal tax rate — its popularity plummets. It starts with high earners, but once that constitutional protection is removed lawmakers will have free reign and people realize that,” Craney said in a written statement.

Supporters think the electorate has changed since then. A poll in May 2018 showed strong support for the Millionaires’ Tax before the state’s highest court prevented it from going to the ballot.

But Craney said state legislators ought to concentrate on getting state government’s house in order instead of demanding more cash from certain residents.

“There are a lot of important problems that need legislative attention — we have one of the highest levels of debt per capita in the country and our healthcare costs continue to balloon to budget busting numbers. Legislators should earn their recent pay raises and work on solving those issues before trying to change the constitution to raise our taxes with tried and failed gimmicks,” Craney said.

A hearing before the state Legislature’s Joint Committee on Revenue is scheduled for 11 a.m. Thursday, April 11 at Gardner Auditorium at the Massachusetts State House in Boston.

The proposed constitutional amendment, Massachusetts Senate Bill 16, states:

Article 44 of the Massachusetts Constitution is hereby amended by adding the following paragraph at the end thereof:-

To provide the resources for quality public education and affordable public colleges and universities, and for the repair and maintenance of roads, bridges and public transportation, all revenues received in accordance with this paragraph shall be expended, subject to appropriation, only for these purposes. In addition to the taxes on income otherwise authorized under this Article, there shall be an additional tax of 4 percent on that portion of annual taxable income in excess of $1,000,000 (one million dollars) reported on any return related to those taxes. To ensure that this additional tax continues to apply only to the commonwealth’s highest income taxpayers, this $1,000,000 (one million dollars) income level shall be adjusted annually to reflect any increases in the cost of living by the same method used for federal income tax brackets. This paragraph shall apply to all tax years beginning on or after January 1, 2023.